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The initial biomass deal was wrapped into the American Jobs Creation Act of 2004. Five years later, the extension finds itself tossed about in a second — still unpredictable —jobs debate in the Senate.

The $31 billion draft of tax extenders released Thursday by Baucus and his ranking Republican, Iowa Sen. Chuck Grassley, was one chapter in a much larger job-creation package supported by both men. Only hours later, following a Democratic Party lunch and criticism from Majority Leader Harry Reid (D-Nev.), the whole enterprise was splintering. And it could be that the tax extenders will be broken out separately as the House did in December.

Waiting too long, however, will bring pressure from industry. And the whole government has a stake in acting quickly on shutting down an unintended tax benefit for the paper industry — a 2007 mistake that’s already cost the Treasury dearly in lost revenues.

At issue is the tax treatment of “black liquor,” a byproduct of the pulp-making process that’s been used to power paper mills since the 1930s. Three years ago, in the course of redefining which biomass-based fuels qualify for an alternative fuel credit, Congress and the Bush Treasury Department inadvertently opened the door for paper companies to generate huge tax breaks for themselves by simply mixing a small amount of diesel with the black liquor they had used for decades.

In a bad economy, this has been a welcome windfall — for the industry, at least.

International Paper just this month reported earning $1.7 billion in alternative fuel mixture credits in 2009. The tax breaks have set off waves big enough to move stock prices — and they now trigger a budget scenario that may dismay taxpayers.

In essence, Congress is correcting an error of the government’s own making. On paper, this results in savings — about $24 billion over 10 years. Those savings are then quickly applied in the new jobs bill to ostensibly pay for the real costs to the Treasury of added tax breaks and new spending.

“Imagine how fast we could balance the budget this way,” said New Hampshire Sen. Judd Gregg, the ranking Republican on the Senate Budget Committee.

Moreover, timber and paper, in giving up their black-liquor gold, are able to demand some concessions in turn.

Favorable capital gains rates for timber investors will be extended as part of the tax package. And timber’s added leverage helps explain why BPA’s biomass tax credit could prevail in the Senate’s extender package, after failing in the House.

At least eight members of Finance have publicly embraced an even longer extension of the tax credit, and Cleaves would argue that the black-liquor controversy has shone “a very bright light” on the current tax subsidies for renewable energy.

He admits his tax break is “atypical” but, then, so is biomass in the renewable market. Wind and solar better fit the model for a production tax credit, which helps investors finance the start-up equipment needed — after which the wind and sun are free. Biomass is different, Cleaves says, in that the plant operators must gather and sometimes pay for their fuel — whether it is wood, rice hulls or bagasse, the dry, fibrous residue left when juice is extracted from sugar cane.

Critics would argue that this doesn’t explain how the same plants operated before getting hooked on the tax subsidy five years ago. And who is really paying whom for the natural residues of processed timber, rice or sugar?

But Cleaves, anxious to expand in the Southeastern markets, would answer that biomass still gives the best bang for the taxpayer’s buck whether measured in BTUs produced and reduced carbon emissions. “And these are jobs,” he said, “good-paying rural jobs.”

We have the most economically feasible biomass conversion technology in concept but no one, I mean no one will take us serious so we haven't been able to get a mere $6 Mil. to put a 3 mW prototype on the ground which includes 3 acres of hydroponic green houses to grow food produce and absorb CO2 emissions from the power plant. This concept is easily expandable and deployable anywhere in the world and it will qualify for Carbon Credits. Pay back is projected at less than five years. Both Power and Food components are Green and Renewable. Every Municipality with 5000 pop. or greater will want to partner with us to virtually eliminate their cost of MSW disposal. So much for Tax Credits. We can't even get funded in the first place.